Unit 12A

Unit 12A - THE UNIVERSITY OF HONG KONG SCHOOL OF BUSINESS...

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U12A_Partnership 1 THE UNIVERSITY OF HONG KONG SCHOOL OF BUSINESS BUSI 0018 – Hong Kong Taxation Unit 12A – Partnership Coverage 1 Introduction 2 Definition 3 Existence of a partnership 4 Computation of partnership profit and loss 5 Allocation/Reallocation of partnership profit and loss 6 Administration Learning Objectives After completing this unit, you should be able to: explain the meaning of partnership compute the share of profit or loss of each partner explain the treatment of profit/loss sharing when there is a change in partner in the partnership explain the treatment of partnership loss 1 INTRODUCTION At Common Law, a partnership does not have a legal personality At Revenue Law, a partnership is treated as a separate taxable entity - s.2 of IRO: "person" includes partnership; - s.22 of IRO specifies one single assessment for one single sum of tax payable to be issued under the name of the partnership 2 DEFINITION s.3(1) of the Partnership Ordinance - "It is the relation which subsists between persons carrying on a business in common with a view of profit" Two important elements: - the carrying on of a business in common - the carrying on of a business with a view to make profit
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U12A_Partnership 2 3 EXISTENCE OF A PARTNERSHIP Largely a question of fact The IRD may consider the followings: - partnership agreement, if any - accounts submitted - separate capital and current accounts for each partner - whether profits or losses have been divided and transferred to each partner - bills, letterheads and the name of the firm on business premises and steps to notify customers of its existence 4 COMPUTATION OF PARTNERSHIP PROFIT AND LOSS Basically no difference from those of a sole-trader and corporation for profits tax computation Specific rules applicable to partners/partnership: - s.16AA – mandatory contribution to MPF by a self-employed person (sole-proprietor or a partner in a partnership) is deemed as deductible, provided that it is not otherwise deductible and not exceeding $12,000 per annum - s.17(2) – salaries or other remuneration paid to any partner or his spouse, interest on capital or loan from any partner or his spouse, and MPF contribution in respect of any partner’s spouse are disallowed - these payments are regarded as appropriation of profits to the partners, and therefore need to be adjusted and allocated to each relevant partners before the general sharing of P/L (refer to section 5 below) - s.8(2)(k) – salaries or remuneration paid by a person subject to profits tax which was not deductible under s.17(2), would be excluded from salaries tax - s.14 – non-corporate partner's share of profit from a partnership is
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Unit 12A - THE UNIVERSITY OF HONG KONG SCHOOL OF BUSINESS...

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